• Parizad Sirwalla, Partner |
4 min read

With the Union Budget 2021-22 on the anvil, akin to past years, a common man hinges his hopes of having more money at his disposal to spend/save as he desires. Especially, considering the present hardships and challenges caused by Covid-19 pandemic on taxpayers’ livelihood and overall economy, the government may evaluate how they can enhance the common man’s purchasing power.

The wish list on the personal tax front are as under:

Separate deduction for Covid-19 treatment

Currently, few deductions have been prescribed under Chapter VI-A of the Income-tax Act, 1961 (the Act) for medical treatment for self or dependent suffering from disability/severe disability (Section 80DD, 80U of the Act), medical treatment of prescribed diseases and ailments (Section 80DDB of the Act). However, there is no specific deduction under the Act which covers treatment cost for Covid-19 patients who are not covered under any health insurance.

Donation made to PM CARES fund designed specifically for providing Covid-19 relief is eligible for 100 per cent deduction u/s 80G of the Act, but no corresponding deduction has been notified for expenses incurred on treatment of disease itself.

Given the substantial cost involved in Covid-19 treatment in Govt. or private hospitals, a separate deduction capped up to INR1,00,000 or actual treatment cost incurred by the taxpayer for self or family, whichever is lower may be considered to be introduced under the Act to provide much-needed relief to the taxpayers specially when such costs are not covered under a health insurance policy.

Provision for furniture by employer

Outbreak of Covid-19 pandemic in March 2020 in many ways compelled organizations to implement work from home (WFH) policy for their employees during the lockdown period and post thereto. During such WFH situation, several companies endeavored to put in place necessary enabling infrastructure through provision of furniture (like tables, ergonomic chairs, etc.), high speed internet, printers, desktops, stationery, etc. for ease of working at their employees’ residences to ensure conducive work environment.

Some companies decided to grant a fixed allowance to employees to meet the expenditure on such furniture/ other items, while others decided to provide a reimbursement. While both the allowances and reimbursements are necessitated by the business requirement, these benefits have the potential of being taxed in the hands of the employees as a perquisite.

As this situation has not been expressly dealt with in the Act or the Rules made thereunder coupled with a fact that WFH on a large scale appears to be a long term norm now, some tax relief specific to work from home scenario may be provided to individual taxpayers and their employers.

Realignment of income slabs/ tax rates

For individual taxpayers below 60 years of age the income tax exemption limit is INR2.5 lakh p.a. This limit has remained unchanged from Financial Year (FY) 2014-15.

Last year the Union Budget 2020-21 provided some relief to taxpayers by allowing them to choose between the existing tax regime and an alternative optional new tax regime. Needless to state that for taxpayers to take advantage of the new tax regime a host of exemptions/deductions were to be foregone.

While the new tax regime had lower tax rates the ultimate benefit to taxpayer was basis the deductions/ exemptions otherwise he/she was eligible to.

Hence, with the objective of simplifying this further and enhancing the net disposable income it may be considered whether the basic exemption limit under the existing tax regime can be enhanced to INR5 lakh itself. This would also need to be assessed basis the potential number of taxpayers who may fall out of mandatory tax return filing requirement.

Subsequently, the other slab rates both under the existing and new regime can be adjusted basis the revised limits in line with the progressive tax rate system India has always adopted.

Housing tax breaks

To reignite the momentum in the real estate sector, the Government may assess enhancing the standard deduction of 30 percent of Net Annual Value to 50 percent and/or enhancing the current limit of deduction for interest payable on housing loan on self-occupied properties to INR 4lakh p.a.

Increase in deduction u/s 80C

The limit of INR1.5 lakh in respect of deduction under Section 80C of the Act for various common tax saving investments/ expenditure (such as employee provident fund, public provident fund, principal repayment of housing loan, children tuition fee, national savings certificate, etc.) has remained constant for almost half a decade now. Keeping in mind the current economic scenario – encouraging demand is one of the priorities of the Government. With this in mind, if individuals are encouraged to spend on expenses like school fees, housing etc. the Government may hence consider increasing this to INR 3lakh p.a. Alternatively, a separate deduction may be introduced (in addition to proposed enhanced limit) for certain high value transactions such as children’s tuition fee (keeping in mind the spiraling education cost over last few years), expenditure on specific items made in India, etc.

Though expectations of a common man on personal taxes can be widespread, maintaining fiscal discipline while providing impetus to higher economic growth will be an unenviable task for the FM to perform specially in these unprecedented times. Thus, it would be interesting to see what personal tax reforms are introduced in the Budget 2021 on this front.

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